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Date: 20030123
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Docket: 2002-1673(IT)I
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BETWEEN:
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JAMES E. YOUNG,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Sarchuk J.
[1] In computing tax payable for the
2000 taxation year the Appellant claimed, inter alia, an
equivalent-to-spouse amount of $6,140. By notice of reassessment,
the Minister of National Revenue, relying on paragraph
118(1)(a) of the Income Tax Act, disallowed the
claim.
[2] The facts are not in dispute. The
Appellant and his former spouse, Laurie Ruth Young, were
married on August 9, 1980 and separated on November 7, 1994.
There were three children, Christopher, James and Jenna. A
separation agreement dated September 24, 1997 provided that the
Appellant and his former spouse would have joint custody of the
children and that the children "shall have their primary
residence in the home of the wife". The separation agreement
further provided that:
6. Commencing
on the 1st day of October, 1997, and in each subsequent month,
the Husband will pay to the Wife for the support of the three
children $1,814.00 (payable in two instalments, $907.00 on
the 15th of each month, and $907.00 on the last day of each
month) until one of the following occurs:
(a) a child
ceases to reside full time with the Wife; "reside full
time" includes a child living away from home to attend an
educational institution, or pursue summer employment, or obtain
medical treatment, or take a vacation, providing a child is
otherwise maintaining a residence with the wife;[1]
(Emphasis added)
The foregoing terms were incorporated into a divorce judgment
dated January 5, 1998.[2]
[3] In April 2000 one of the children,
James, moved in with the Appellant and ceased to "reside
full time with the wife". It is not disputed that the
Appellant continued to pay the full amount of $1,814 per month
for the balance of the taxation year in issue. He testified that
he did so on the mistaken assumption that the divorce judgment
dated January 5, 1998 remained in effect until otherwise directed
by the Court. He further said that because a number of other
issues had to be determined, this did not occur until an Ontario
Superior Court of Justice issued a temporary Order on July 10,
2001, which directed that the child support from the Appellant to
his former spouse for James was terminated.[3] This Order was followed by a final
Order dated October 5, 2001 to similar effect.[4]
Respondent's position
[4] Counsel for the Respondent
conceded that for the taxation year in issue, the Appellant met
all of the conditions stipulated in paragraph 118(1)(b) of
the Act. More specifically, the Appellant was not entitled
to and did not claim a tax credit for a dependant spouse, he was
unmarried, and as of April 2000, maintained a home in which he
totally supported his son James. Nonetheless, the
Respondent's position is that the Appellant is precluded from
receiving the equivalent-to-spouse credit for the 2000 taxation
year because he was required to and did pay a support amount in
that year within the meaning of subsection 118(5) of the
Act.
[5] Counsel for the Respondent further
argued that even if this Court were to find that the Appellant
was no longer required to pay a support amount in respect of
James for the period of April 1, 2000 to the end of the year, the
appeal ought to be dismissed on the grounds that for the first
three months of the taxation year in issue when James was living
with his mother, the Appellant did in fact pay a support amount
within the meaning of subsection 118(5) of the Act.
[6] Counsel referred to Barthels v.
Canada[5] and
Biggs v. Canada.[6] In each of these cases, (a) the operative
Order contained language stipulating that the support payments to
the spouse cease upon the child commencing to live with the
Appellant full time; (b) that event occurred prior to the
taxation year in issue; and (c) the Appellants immediately had
ceased making payments in respect of the child. Counsel for the
Respondent, quite correctly, distinguished these cases on the
basis that as contrasted to the present appeal, no support
amounts whatsoever had been paid by Barthels or
Biggs in the taxation year in issue.
[7] Counsel further referred to
Spirig v. Canada,[7] Sherrer v. Canada[8] and Canada v.
Marshall[9] and argued that these decisions stand for
the proposition that when an Appellant is required to and does
make a support payment in a given year, be it for one month or
five or ten, that Appellant is not entitled to claim the
equivalent-to-spouse credit by virtue of subsection 118(5).
Appellant's position
[8] The Appellant says the Minister
erred in disallowing the equivalent-to-spouse credit on the basis
that:
(a) the Court Order failed to
take into account the fact he supported his son as a dependant
living with him in a home he maintained; and
(b) the Order failed to address the
issue of retroactive support with the result that it also failed
to take into account that "the child support paid (i.e.
April 1, 2000 to June 30, 2001) was effectively spousal
support".
None of the foregoing submissions provide the Appellant with a
basis for the relief sought.
[9] The Appellant also urged the Court
to adopt the following comments of the trial judge in
Barthels:
11 Secondly, I note
that subsection 118(5) has a potential ambiguity in that one
might ask the relevance of it not expressly stating when the
requirement to pay a support amount needs to be in place. It is
somewhat unusual that that subsection denies the credit "for
a taxation year" where there is "a requirement to pay a
support amount" but makes no mention of when that
requirement must have come into existence or have been
extinguished. More typically, exhaustive drafting styles
evidenced in the Act might have said the credit is denied
where there is "in the year" or "at anytime in the
year" or "in respect of the year or any part of the
year" a requirement to pay a support amount. While I
hesitate to suggest that these cumbersome provisions be made
more cumbersome by adding further language, I am inclined in
this case to suggest that by not adding a time reference as to
when the requirement to pay must be in existence, an
extinguishment, at any time, of the requirement to pay any
support amount "in respect of the year" might well be
sufficient to escape the limitation imposed by that
subsection. Certainly in this case I see no mischief in such
a statutory construction approach.
(Emphasis added)
Although the Appellant's submissions lacked clarity, I
understood him to say that the relevant provisions, i.e.
subsections 118(1) and 118(5), could be read so as to allow his
claim to the tax credits either in total or on a prorated basis
for the period commencing April 1, 2000.
Analysis
[10] Reference to a number of sections of
the Act suggests that it is reasonable to conclude that in
certain instances, the legislators intended that a tax credit or
liability be applied for a specific period of time regardless of
whether the taxpayer engaged in the requisite behaviour for the
entire period. An example of this is found in the same section as
the equivalent-to-spouse credit, the application of which is in
dispute in the case at bar. This is made apparent by the use of
the words "at any time in the year" in paragraph
118(1)(a):
118(1) For the purpose of computing the tax
payable under this Part by an individual for a taxation year,
there may be deducted an amount determined by the formula
A x B
where
A is the
appropriate percentage for the year, and
B is the
total of,
(a) in the
case of an individual who at any time in the year is a
married person or a person who is in a common-law partnership who
supports the individual's spouse or common-law partner and is
not living separate and apart from the spouse or common-law
partner by reason of a breakdown of their marriage or common-law
partnership, an amount equal to the total of ...
The section relating to the equivalent-to-spouse benefit is
118(1)(b). It provides:
(b) in the
case of an individual who does not claim a deduction for the year
because of paragraph (a) and who, at any time in the
year, ...
On reading of 118(1)(b), it is clear that if all of the
criteria set out therein are met "at any time in the
year" the credit would appear to be available. Unfortunately
for the Appellant, the legislators also enacted subsection 118(5)
which reads:
118(5) No amount may be deducted under subsection (1) in
computing an individual's tax payable under this Part for a
taxation year in respect of a person where the individual is
required to pay a support amount (as defined in subsection
56.1(4)) to the individual's spouse or common-law partner
or former spouse or common-law partner in respect of the person
and the individual
(a) lives
separate and apart from the spouse or common-law partner or
former spouse or common-law partner throughout the year because
of the breakdown of their marriage or common-law partnership;
or
(b) claims a
deduction for the year because of section 60 in respect of a
support amount paid to the spouse or common-law partner or former
spouse or common-law partner.
Reading the two subsections together, it seems clear that had
the legislators intended to permit an extinguishment, at any
time, of the requirement to pay any support "in respect of
the year" or, in the alternative, to create the
equivalent-to- spouse credit by allowing that portion reflecting
the period of time no support payment was required to be paid,
they would have done so in clear and unambiguous language.
[11] Furthermore, it is also evident that
the concept or proration is not unknown to the legislators. The
most common indication of proration is the frequent use of the
words "proportion" or "portion thereof". This
indicates that a calculation must be performed to determine the
amount of the tax credit or liability. One such example is seen
in subsection 18(2.5), which deals with special rules applicable
for base level deductions in the section concerning legitimate
deductions from business or property. Subsection 18(2.5) of the
Act is applicable where a corporation has two or more
taxation years ending in the same calendar year in which it is
associated with another corporation. Paragraph 18(2.5)(b)
provides:
18(2.5) Notwithstanding any other provision of this
section,
(a) ...
(b) where a
corporation has a taxation year that is less than 51 weeks, its
base level deduction for the year is that proportion of its base
level deduction for the year determined without reference to this
paragraph that the number of days in the year is of 365.
[12] A similar example is seen in subsection
32(1) of the Act. This subsection provides a reserve in
respect of "unearned commissions" for insurance agents or
brokers, and stipulates that the reserve amount is limited to the
lesser of an amount that is based on a proration of the
taxpayer's commissions over that part of the term of each
insurance contract that falls in subsequent taxation years and
the amount that would have been deductible under paragraph
20(1)(m), which is not available to insurance agents or
brokers.
[13] There are alsoprovisions in the
Act whereby a specific amount is reduced by proration.
Such is the case in paragraph 122.3(1)(c), which
calculates the overseas employment tax credit. This is determined
by multiplying the tax otherwise payable in the year by a
fraction: the numerator of which is the lesser of $80,000 and 80%
of the individual's overseas employment income for the year;
the denominator is the individual's income for the year less
certain deductions. The $80,000 figure set out in paragraph
122.3(1)(c) is reduced, on a prorated basis, if the number
of days in the "qualifying period" is less than 365.
[14] What appears to be suggested by the
Appellant based on the Barthels decision is reading into
the language of the section and "any time in the year"
concept or, as was suggested by him, the right to prorate. I am
unable to accept either proposition. As previously noted, when
the legislators intended that a tax credit or liability be
applied for a specific period regardless whether the taxpayer is
engaged in the requisite behaviour for the whole period, that
intention was clearly expressed in the statue. The same applies
to the concept of proration.
[15] In this context, in Canada v.
Marshall,[10]
the Federal Court of Appeal dealt with an application by the
Crown to determine whether both parents could be considered to
primarily fulfil the responsibility for the care and upbringing
of the children of the marriage. At issue was whether the
entitlement to child care benefits under the Act could be
prorated between two parents who both claimed to be eligible
individuals. In concluding otherwise, Stone J. observed:
This section of the Act contemplates only one parent being
an "eligible individual" for the purpose of allowing
the benefits. It makes no provision for prorating between two who
claim to be eligible parents. Only Parliament can provide for a
prorating of benefits but it has not done so.
[16] For the foregoing reasons, the appeal
is dismissed.
Signed at Ottawa, Canada, this 23rd day of January, 2003.
J.T.C.C.
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